Storm clouds roll towards Naspers-owned Tencent from Beijing – With insights from The Wall Street Journal

It was to be the world’s biggest IPO – until the Chinese government stopped it. Ant Group – the world’s highest-valued fintech company had its moment taken away from it, when the US$34bn IPO was halted suddenly. Another booming Chinese fintech is Tencent, which saw share prices fall after reaching an all-time high recently. South African giant Naspers and Prosus, which recently listed in Amsterdam, are underpinned by Tencent. With the sudden clampdown on Ant Group, could this affect other major FinTech’s such as Tencent, and in turn, Naspers? – Jarryd Neves

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Tencent’s Beijing boss battle could be costly

The game giant had another strong quarter, but a darkening regulatory picture could mean tougher times ahead

The world’s largest game company keeps churning out money, and high scores. But Beijing’s heavy hand threatens to weigh on the mood.

Tencent’s revenue for the quarter ended in September was up 29% from a year earlier, while operating profit rose 70%, both beating the forecasts of analysts on S&P Global Market Intelligence.

The boost the core gaming business got from the pandemic doesn’t seem to have faded: Revenue from smartphone games was up 61% year over year, the third consecutive quarter above 60%. The flagship game ‘Honor of Kings’ is still going strong five years after launch, averaging 100 million daily users in the first 10 months of 2020. Tencent will make an animated series and a live-action drama series based on the game’s fictional universe.

The Chinese company’s games, especially ‘PUBG Mobile,’ have also done well outside China. Consolidating Finnish game company Supercell late last year has likely contributed to growth.

And Tencent can probably ride out the eventual likely waning of the Covid-19 boost, thanks to its strong pipeline. The new games ‘Moonlight Blade Mobile’ and ‘League of Legends: Wild Rift’ are both doing well.

But there is a cloud over the company’s outlook: Beijing’s latest regulatory actions. Last week the government halted the record $34 billion initial public offering of Alibaba-backed Ant Group, and this week it released a draft of tough rules targeting monopolistic practices  on the country’s digital platforms.

Tencent and Ant own China’s two dominant mobile-payment apps, so the sudden interruption of Ant’s IPO could drive down valuations of Tencent’s fintech business as well. Regulators may scrutinize Tencent less, as its online financial services business is smaller than Ant’s. But the segment is one of the company’s fastest-growing: The number of wealth-management customers last quarter was up more than 50% from a year earlier.

The sharing of user data across Tencent’s platforms may also come under regulators’ gaze, especially since it owns WeChat, whose 1.2 billion users make it the country’s most popular social network.

Tencent’s share price has fallen 8% since hitting its all-time high last week. Until the force of Beijing’s crackdown becomes clear, shares will struggle to reach the next level.

Write to Jacky Wong at [email protected]